Completing Markets in a One-Good, Pure Exchange Economy Without State-Contingent Securities
AbstractPareto-efficient consumption in a pure-exchange, one good economy varies over states of nature with respect to only two factors: real aggregate supply and individual utility shocks. One’s optimal contract receipts vary with respect to only these two factors and the ratio of one’s endowment to real aggregate supply. How one’s Pareto-efficient consumption varies with real aggregate supply depends solely on how one’s relative risk aversion compares to the average. Complete markets can be approximately achieved by four contracts dealing with these factors. This has implications concerning central banking, efficient insurance contract design, and a possible new financial innovation.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0501009.
Length: 42 pages
Date of creation: 15 Jan 2005
Date of revision:
Note: Type of Document - pdf; pages: 42. Paper has policy implications concerning monetary policy and goals, insurance contract design, and optimal inflation indexing
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complete markets; inflation indexing; nominal-income targeting; inflation targeting; price-level targeting; monetary policy;
Find related papers by JEL classification:
- E - Macroeconomics and Monetary Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-01-23 (All new papers)
- NEP-FIN-2005-01-23 (Finance)
- NEP-MAC-2005-01-23 (Macroeconomics)
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